TREASURIES-Prices slide as safe-haven assets lose luster

* Stock rally, global recovery bets hurt government bonds

* ISM manufacturing data pointed toward recovery

* S&P stock index breaks above 1,000 points (Adds comment, updates prices, changes byline)

By Ellen Freilich

NEW YORK, Aug 3 (Reuters) - Treasury bond prices tumbled on Monday as a global stock market rally undermined the safe-haven bid for government debt and optimistic reports on manufacturing and construction reinforced U.S. economic recovery hopes.

As the global financial crisis neared its second anniversary and after 18 months of a painful recession in the United States, signs of an incipient rebound now consistently appear in economic data reports.

Those economic harbingers pushed stocks higher and Treasuries prices down,

"Investors are buying more risk assets like equities, and Treasuries are suffering," said John Spinello, senior vice president and chief fixed-income technical analyst at Jefferies & Co in New York. "All these positives about the economy and the stock market are coming at the expense of Treasuries."

The benchmark 10-year Treasury note's price, which moves inversely to its yield, fell 1-8/32, its yield rising to 3.65 percent US10YT=RR from 3.48 percent late Friday.

The Institute for Supply Management said its U.S. manufacturing index for July rose to 48.9, near the critical 50 mark which divides expansion from contraction.

"ISM reported significant improvement in manufacturing conditions, with composition (of the index) suggesting more to come in the near future," said economists at Goldman, Sachs.

A rise in U.S. June construction spending, including a 0.5 percent rise in private residential construction, was another piece of good economic news.

"The economy is at least stabilizing, if not improving slightly," said William O'Donnell, head Treasury strategist at RBS Securities in Stamford, Connecticut. "The predictable reaction of the Treasury market is to cheapen further, with stocks rebounding further," he said.

Investors' belief that the recession was abating pushed the S&P 500 Index .SPX above the pivotal 1,000-points mark. Even before the manufacturing report, Wall Street stocks had a strong start, aided by some reassuring European bank results.

Banks have been hefty buyers of Treasuries over the past two weeks, said Jamie Cox, managing partner at financial planning and asset management company Harris Financial Group in Colonial Heights, Virginia. But should stocks go on climbing and breach key levels, that would crimp this demand and draw more flows away from the government bond market, he warned.

"At some point, all that money is going to come washing out. The real risk is a huge spike in rates; that the demand for Treasuries will wane," Cox said. "If the stock market continues to climb, it may happen quicker than we think."

The 2-year Treasury note price fell 4/32, its yield rising to 1.18 percent US2YT=RR from 1.11 percent late Friday.

The 7-year note fell 30/32 in price US7YT=RR, its yield rising to 3.30 percent from 3.15 percent on Friday.

The 30-year Treasury bond fell 1-30/32 in price, its yield rising to 4.42 percent US30YT=RR from 4.30 percent Friday.

Adding to impressions manufacturing was finding a footing was Ford Motor Co's (F.N) first year-over-year monthly sales increase since November 2007. (Additional reporting by John Parry; Editing by James Dalgleish)